Monday, May 30, 2011

The House and Senate approved a transportation bill that would give the Dallas area more bonding capacity for road projects and allow leaders to pursue new private toll road deals .

The measure, a sunset bill reauthorizing the Texas Department of Transportation, was stripped of a provision that would have banned the installation of red-light cameras on state roads unless the state approved.

Both provision potentially benefit private equity underwriters (PEU's) with billions in infrastructure funds ready to go to work. The Carlyle Group recently lost a bid for Redflex, a red light camera maker.

Senator Robert Duncan (R-Lubbock) offered a bill that would increase the percent the Teacher Retirement System of Texas could invest in hedge funds. SB 1666 would increase the amount from 5% to 10%, providing Duncan's bill passes in special session. The Carlyle Group invested in hedge fund Clarion Road. Carlyle lost two funds before the 2008 Fall financial crisis, BlueWave Partners (hedge fund) and Carlyle Capital Corporation (publicly traded CMBS fund).

S.B. 1666 grants additional flexibility to TRS in its ability to invest in hedge funds. This would help it to further diversify its investments, further insulating TRS's assets from the negative effects of an economic downturn.

Insulating? More like amplifying any negative effects. Carlyle made $681 million in capital calls to CalPERS in September 2008. What might hedge funds ask of TRS in capital support in the next implosion? That wasn't in the financial analysis.

Update 5-31-11: Public pension funds continue to invest in PEU's, according to Preqin. The article cites an appetite for investing with a relatively small number of general partners in influential PEU firms.

Friday, May 27, 2011

Buyout firm Carlyle Group accepted $118 million from the biggest sovereign-wealth fund in Libya, demonstrating the North African nation’s success in courting asset managers and banks after persuading Western politicians that it had dropped ties to terrorism.

The report suggests private equity underwriters (PEU's) waited for politicians to open the door. Wrong. PEU's, like Carlyle co-founder David Rubenstein, were pioneers in opening up Libya. The report broke down Libya's investments in Carlyle funds:

Carlyle Partner V Fund--$75.5 million

Carlyle MENA (Middle East-North Africa) Fund--$42.6 million

Bloomberg's interview continued the false theme:

“The political establishment opened their arms to Qaddafi after 2006 and the financial establishment followed suit,” Robert Palmer, a policy adviser and investigator for Global Witness, said in an interview. “This is surprising, considering the very obvious risks of corruption in Libya and that state assets could have been diverted for his personal gain.”

FT noted Rubenstein's visiting Libya in 2006, as did Rep. Tom Lantos (D-CA) and Senator Arlen Specter (R-PA).. What role did he play in legitimizing the Gadhafi regime for politicians? Despite a clear track record, there are no global witnesses for Rubenstien's courting of Gadhafi and his son Saif,.

Given the risks of sovereign wealth funds, financial reform did virtually nothing to ensure openness and transparency with PEU's or SWF's. Carlyle's big tent has but one criteria, money. The rest is superfluous.

Update 5-31-11: WSJ ran a story on Goldman Sachs losing 98% of a $1.3 billion investment by the Libya Investment Authority. It clearly shows risks associated with SWF's, as Goldman repeatedly tried to appease the LIA..

Update 11-19-11: Saif has been captured by Libyan militia forces. His fate is unknown, but I'm sure he'll be silenced one way or another.

Update 1-8-14: CNN did a story on celebrities cozying up to dictators and included Beyonce's performing for the Gahafi clan in 2009. Brooke Baldwin failed to mention Senator John McCain tweeting from the Gadhafi ranch, Tony Blair's trading a Libyan terrorist for a BP oil deal or Carlyle co-founder David Rubenstein's courting Gadhafi oil money. I expect a news organization to not parse the list of Westerners tapping Libyan oil money.

Update 7-23-15: Now we now what went on under the big tent, broker sponsored "no sperm left parties."

Wednesday, May 25, 2011

In a strategic move to boost investment in the country, the Embassy of Jamaica in Washington, D.C., this week launched the ‘Jamaica Rising’ investment campaign, bringing twenty (20) high net worth potential financiers together to look at a series of opportunities available in Jamaica.

The luncheon brought together chairmen and executives of major corporations, investors, and entities, among them Marriott/Ritz-Carlton Hotel, Viacom, the Carlyle Group, Clark Construction, the Spectrum Group, the World Bank Group and the International Monetary Fund.

PEU's remain detectable, except when hidden by open and transparent governments. Keep an eye out for the Jamaica Rising Investment Campaign:

The partnership would involve "international financial institutions in a proposed Diaspora development bond the Ambassador had highlighted in her presentation, and expressed confidence that such a financial instrument could raise the US$2.5 billion, as an initial target, to fund the infrastructure re-development of downtown Kingston."

Global competition for PEU capital ensures the race to the lowest global common denominator on worker pay/benefits, taxes and regulation will continue. Right now, PEU's are clearly winning.

In the sovereign credit default market, which is lightly traded, the five-year cost to protect a U.S. Treasury default was last quoted at 51.167 basis points, up from 48.401 basis points on Thursday, according to Markit.

Lehman owed $370 billion when it imploded. The U.S. government owes over $14 trillion. I expect elected leaders who went ghost faced in September 2008 to not invoke a "nuclear explosion in the financial markets," as cited by NakedCapitalism over two years ago. Lehman's fallout continues, complete with high dollar bottom feeders.

It seems like yesterday Rubenstein queried ex-OMB Chief Peter Orszag about health reform, with its "political economy of delayed implementation" and "throwing stuff against the wall to see what sticks." Lew and Orszag kow towed to the moderator, a politically-connected private equity underwriter (PEU).

Monday, May 23, 2011

China Development Bank Corp.’s investment unit agreed to purchase a stake in U.S. buyout firm TPG Capital, said a person with knowledge of the matter.

TPG co-founder Jim Coulter attended a signing ceremony in Beijing today with China Development Bank Capital Co., according to a copy of the schedule for the event seen by Bloomberg News. Michael Fuchs, an external spokesman for TPG, and Zhang Cheng, vice president of the strategic planning department for CDB Capital, declined to comment.

Note the lack of disclosure regarding a SWF buying into a PEU. Add China's abysmal quality record to private equity's greed and dastardly deeds await. China refused to honor its derivative commitments in the last financial crisis, blowing off capital calls. When the next one hits and TPG approaches China Development Bank for capital infusions, what will happen?

America's White House loves PEU's, especially one owning Mrs. Obama's favorite clothier, J. Crewe. What happens when the world encounters the next spin of the Wayback Machine? The Wayback Machine ran hot lately, bringing us another "no fly zone" over the country of a heinous dictator, an acrimonious budget battle with possible government shutdown, and a nuclear plant disaster

How will a China funded PEU contribute to the next meltdown and how will Chinese investors make things worse? It remains to be seen.

Saturday, May 21, 2011

Bruce Rauner ’78, co-founder of the private equity firm GTCR, emphasized the importance of stability and predictability to a recovery. The current U.S. government’s policies are “anti-business” and “unpredictable,” and have prevented the market from regaining stability.

Granted, one area of unpredictability is taxes, which private equity underwriters (PEU's) hate to pay. Otherwise, these are odd statements from a man investing in government guaranteed sweet spotsof the U.S. economy. GTCR just closed Fund X, a $3.25 billion fund. Fund X targets include health care.

GTCR and The Carlyle Group are shopping for medical insurers given government passed health reform. GTCR owns ten health care affiliates. Three are pharmacy companies, one focuses on medical devices and one is a hospice provider. GTCR also has:

APS Healthcare, Inc. is a leading specialty healthcare services company that provides a full range of outsourced healthcare service solutions to government entities, health plans and employers.

Capella Healthcare, Inc. (“Capella”) is an operator of community hospitals in growing, mid-size communities across the U.S. Capella’s hospitals are operated in tandem with local healthcare leaders, hospital boards, physicians and employees. Capella targets hospitals that are struggling to meet the growing demands of governmental regulation, complicated reimbursement requirements and the constant and capital-intensive upgrading of equipment and facilities. Capella infuses capital to expand services quickly and provides the highly specialized expertise to recruit physicians, maximize cash flow, improve quality and control costs.

The company could make capital improvements to the hospital campus, save the hospital millions of dollars because of the company’s purchasing power with vendors and suppliers, and expand services while maintaining staff and seniority levels. He also noted that, as a for-profit venture, the hospital would start paying taxes, which he said would provide millions of dollars for local jurisdictions.

Let's examine these one at a time. Capital improvements were already in the works at Whidbey General. How much capital did Capella promise to invest? The public hospital had a vote scheduled on a bond issue.

The presentation came about a week before mail-in voting wraps up May 17 for a $50 million bond that would fund construction of a new wing at the 41-year-old hospital’s Coupeville campus.

How would interest rates compare between Capella's capital financing and the public bond? Whidbey has access to tax exempt bond financing, which Capella lacks.

The timing of the presentation raises questions if Capella's aim was to submarine the bond vote.

“People are upset and confused about what to do about the bond,” said one community member

Capella was happy to introduce instability for competitive advantage. What about their purchasing power claim? The company has 13 hospitals, ranging from 60 to 275 beds. Average bed size is 135. Total beds are 1,757. Any state hospital association purchasing program has more beds, thus greater negotiating power than Capella. Two Capella states, Arkansas and Oklahoma, partner with Amerinet on group purchasing. If size matters in getting good pricing, Amerinet spanks Capella.

Who thought a PEU affiliate would claim the advantages of paying taxes? How many millions would need to come out of operations to pay for Capella's management fee and new local taxes? How many jobs would be eliminated and benefits cut to position the Whidbey's of the world for resale?

Obama's health care reform brings uncertainty, bringing back memories of the mid 90's when CEO's panicked over the specter of managed care. History repeats itself and PEU's stand ready to profit from uncertainty, while decrying it. Bruce Rauner is a PEU fractal. It's shape is a silver spoon..

Note: White House Chief of Staff Rahm Emanuel rescued PPACA from a certain death. The Golder side of GTCR mentored Rahm in investment banking. Surely, they discussed the investment sweet spots in health reform, especially given Emanuel's return to Chicago as Mayor. The government sets up winners, in this case for-profit hospitals. Safety net hospitals have three more years to struggle without significant help.

Friday, May 20, 2011

The Carlyle Group will raise nearly $1 billion for a fund focused on South America. This means Carlyle is globally ubiquitous. Remaining targets include the North and South Poles, as well as the Space Station. Watch out Santa, private equity underwriters (PEU's) are coming. Mr. Claus can skip 1001 Pennsylvania Avenue this December. Their bags are already overflowing.

Thursday, May 19, 2011

Triumph Group, Inc. (NYSE:TGI) today announced a public offering of its common stock. The size of the offering is 2,500,000 shares of common stock offered by investment funds associated with The Carlyle Group. Upon completion of the offering, investment funds associated with The Carlyle Group will own approximately 20% of the common stock of Triumph Group. The offering is expected to close and settle on May 25, 2011. The company will not receive any of the proceeds from the offering of shares by the selling stockholders.

Carlyle received 7.5 million shares of Triumph Group stock and $525 million in cash for Vought Aircraft Industries. They plan to sell 2.5 million, or a third of their holdings. That's $236 million at today's closing stock price

Two oddities are associated with Carlyle's latest cash in. The first is Carlyle hoped to take Vought public in summer 2008, filing an S-1 just months before the September financial meltdown. Obviously, Vought's IPO didn't fly given Lehman's implosion. It took two more years for Carlyle to sell Vought to Triumph.

The second oddity comes from Triumph's SEC filings. They show Carlyle with only 5 million shares, not the 7.5 million exchanged in the sale.

One might expect Triumph to know who holds their stock, especially a loose 2.5 million shares held by their largest holder. Triumph shows Carlyle with 20% of the company, the same ownership percentage they claim Carlyle will hold after the public offering. Who has the 2.5 million shares and why weren't they previously reported?

Here's a clue as to how PEU's operate (from Triumph's description of Carlyle's holdings):

(11)Information is based on a Schedule 13D filed by DBD Investors V, L.L.C., TCG Holdings II, L.P., TC Group Investment Holdings, L.P., TC Group III, L.L.C, TC Group III, L.P., Carlyle Partners III, L.P., CP III Coinvestment, L.P., TCG Holdings, L.L.C., TC Group, L.L.C., TC Group II, L.L.C., Carlyle Partners II, L.P., Carlyle International Partners II, L.P., State Board of Administration of Florida, Carlyle-Aerostructures Partners, L.P., CHYP Holdings, L.L.C., Carlyle-Aerostructures Partners II, L.P., C/S International Partners, Carlyle-Aerostructures International Partners, L.P., Carlyle-Contour Partners, L.P., Carlyle SBC Partners II, L.P., Carlyle International Partners III, L.P., Carlyle-Aerostructures Management, L.P., Carlyle-Contour International Partners, L.P., and Carlyle Investment Group, L.P. on June 28, 2010. The Schedule 13D reports that on June 16, 2010, (a) DBD Investors V, L.L.C. had shared voting power and shared dispositive power over 5,046,775 shares, (b) TCG Holdings II, L.P. had shared voting power and shared dispositive power over 5,046,775 shares, (c) TC Group Investment Holdings, L.P. had shared voting power and shared dispositive power over 5,046,775 shares, (d) TC Group III, L.L.C. had shared voting power and shared dispositive power over 5,046,775 shares, (e) TC Group III, L.P. had shared voting power and shared dispositive power over 5,046,775 shares, (f) Carlyle Partners III, L.P. had shared voting power and shared dispositive power over 4,896,850 shares, (g) CP III Coinvestment, L.P. had shared voting power and shared dispositive power over 149,925 shares, (h) TCG Holdings, L.L.C. had shared voting power and shared dispositive power over 2,286,283 shares, (i) TC Group, L.L.C. had shared voting power and shared dispositive power over 2,286,283 shares, (j) TC Group II, L.L.C. had shared voting power and shared dispositive power over 1,359,785 shares, (k) Carlyle Partners II, L.P. had shared voting power and shared dispositive power over 640,494 shares, (l) Carlyle International Partners II, L.P. had shared voting power and shared dispositive power over 539,452 shares, (m) State Board of Administration of Florida had shared voting power and shared dispositive power over 248,846 shares, (n) Carlyle-Aerostructures Partners, L.P. had shared voting power and shared dispositive power over 199,994 shares, (o) CHYP Holdings, L.L.C. had shared voting power and shared dispositive power over 181,827 shares, (p) Carlyle-Aerostructures Partners II, L.P. had shared voting power and shared dispositive power over 153,193 shares, (q) C/S/ International Partners had shared voting power and shared dispositive power over 121,633 shares, (r) Carlyle-Aerostructures International Partners, L.P. had shared voting power and shared dispositive power over 79,395 shares, (s) Carylyle-Contour Partners, L.P. had shared voting power and shared dispositive power over 34,765 shares, (t) Carlyle SBC Partners II, L.P. had shared voting power and shared dispositive power over 29,193 shares, (u) Carlyle International Partners III, L.P. had shared voting power and shared dispositive power over 29,013 shares, (v) Carlyle-Aerostructures Management L.P. had shared voting power and

Saturday, May 7, 2011

Private equity underwriters (PEU's) believe they're the answer to America's retirement woes. They said so at the annual Milken Conference, according to Reuters:

Several private equity executives at the Milken powwow contended that both defined contribution and defined benefit plans could reverse their funding deficits by pouring investment money into "alternative" investment classes, including hedge and private equity funds.

David Rubenstein, a private equity executive who co-founded the Carlyle Group, said "more and more money is likely to go into private equity, particularly public pension funds."

Crank up the risk, crank up the reward. Pay no attention to PEU's role in the froth, which Rubenstein analogized to sex.

Milken Institute's promo stated:

Major equity investors will forecast where the markets are headed, military and intelligence leaders will assess global risk, and Nobel laureates will predict the future of medical science. That's all in addition to scores of sessions on finance, education, government, media, regions and industries.

Milken PEU speakers I've cited over the years include:

Milken Institute hosted panels to make sense of the latest headlines. They include::

From Revolution to Rebuilding, discussing the economic impacts of the profound political shifts occurring in the Middle East

The Future of Organized Labor, debating how the events in Wisconsin and other states may affect unions

The New Economics of Food, outlining the dramatic rise in prices and what might happen next

Times are tough for most people. Americans spend more of their income on health care, health insurance, gasoline, and food, or they do without. Citizens are asked to fund a greater share of their retirement, partly because major equity investors don't want to meet pension obligations or pay more taxes. PEU's wish to pay less in worker benefits and taxes. How might they accomplish such? .Fascism, where corporations and the state are effectively one.

It's been said that democracy is messy – but today it seems downright cumbersome, too. The United States seems stuck in neutral on pressing issues such as ending our addiction to foreign oil, rebuilding our infrastructure or transforming our schools. Meantime, China is building vast new projects and implementing policy shifts seemingly overnight. But its speed and decisiveness often come at the expense of individual rights and the environment, and its state-run system has monumental challenges to overcome. India, the world's most populous democracy, has economic potential to match China's. But can its government pull off the massive infrastructure improvements and bureaucratic reforms needed to maintain growth? Can European democracies deal with the increasing costs of their more robust socialist safety net? Which approach will carry the day? Which nations have models and results worth examining? Can participatory democracy respond quickly enough to a world where change moves at lightning speed? .

That the promo for a Milken panel titled: "Are Democratic Governments Up to Meeting 21st-Century Challenges?" Watch for yourself.

Friday, May 6, 2011

The Carlyle Group will invest in a Brand Bank, a Georgia commercial banking institution. A $125 million capital raise expanded to $200 million. Investors grew from 7 in November 2010 to an undisclosed number. Recently, Carlyle announced a bank deal in North Carolina. Before that it was Virginia, Hawaii and Florida.

At what point does an executive or board member pick up the phone and call the Carlyle Group?

Desperate times call for desperate measures, even in the world of high finance. Carlyle loves market dislocations, which enable shadow bankers to become real bankers. Assets come cheap, even cheaper with federal subsidies from direct FDIC cash injections (BankUnited), TARP money (Boston Private) or exchange programs (Hampton Roads/FNB/Central Pacific) and classifying deals as tax exempt.

Thursday, May 5, 2011

The Carlyle Group, Thomas H. Lee Partners and Bain Capital will dip on Dunkin' Brands at least three ways. First, sponsors charge a $3 million annual management fee, a common move for private equity underwriters (PEU's). Five years of management fees comes to $15 million. The S-1 speaks to this arrangement ending:

In connection with this offering, the management agreement will be terminated in exchange for a payment to the Management Companies of approximately $14 million.

That brings management fee milking to $29 million, or nearly $10 million per PEU..

Second, Dunkin' executed a "debt for dividend" move at the end of 2010. It borrowed $1.95 billion, before paying sponsors a $500 million dividend. Lastly, Carlyle & Co. will monetize a portion of their equity via a $400 million independent public offering (IPO). The S-1 is silent on the number of shares to be sold or the offering price.

As for being a shrewd PEU operator, they know how to load up a company with debt. Dunkin' Brands has $2.8 billion in long term debt. Carlyle & Co. purchased Dunkin' in 2006. Their domestic track record for Dunkin' Donuts same store sales looks like:

Baskin Robbins (BR) domestic same stores sales is abysmal, only turning positive in the last year. But pay no attention to those numbers. Pony up for the IPO sweepstakes:

BR is helped by their contracts with the U.S. military, where they take ice cream money from soldiers.

We have contracts with the U.S. military, including with the Army & Air Force Exchange Service and the Navy Exchange Service Command. These military contracts are predominantly between the U.S. military and Baskin-Robbins. We derive revenue from the arrangements provided for under these contracts mainly through the sale of ice cream to the U.S. military (rather than through royalties) for resale on base locations and in field operations. While revenues derived from arrangements with the U.S. military represented less than 2% of our total revenues and less than 6% of our international revenues for 2010, because these contracts are non-exclusive and cancellable with minimal notice and have no minimum purchase requirements, revenues attributable to these contracts may vary significantly year to year. Any changes in the U.S. military’s domestic or international needs, or a decision by the U.S. military to use a different supplier, could result in lower revenues for us.

Sunday, May 1, 2011

The Carlyle Group invested in a series of small banks, all with TARP financing. The latest is FNB United, a North Carolina bank Carlyle and Oak Hill will invest $155 million alongside other investors in FNB, which will merge with Bank of Granite.

Carlyle and Oak Hill have each agreed to purchase from FNB, 484,375,000 shares of FNB Common Stock at a price of $0.16 per share, for aggregate cash consideration from each of Carlyle and Oak Hill of $77,500,000 (a total of $155,000,000)

U.S. Treasury owns $51.5 million in FNB preferred stock (liquidation value) and has warrants to buy nearly 3 million shares at $3.50 per share. TARP will exchange the $51.5 million preferred for $12.9 million in FNB common stock. That's a $38.6 million federal subsidy (gift of Tier 1 capital) to Carlyle and company. Treasury will keep the 3 million in warrants with a new exercise price of 16 cents a share. Those 3 million shares are massively diluted by almost 2 billion new investor shares.

The Feds changed tactics in recapitalizing banks after Carlyle and peers held up BankUnited for $2.3 billion in FDIC cash. New owners.took BankUnited public a year later, much to the chagrin of citizens paying attention. It's harder to find government subsidies for private equity underwriters (PEU's) in SEC documents. Rest assured, they remain.

The Feds accommodated the deal by signing a deferred prosecution agreement with anchor investors (Carlyle and company) regarding FNB's involvement in a customer's Ponzi scheme. The Department of Justice agreement requires FNB:

pay on the Closing Date $400,000 to the District Court for distribution to the victims of the fraud perpetrated by the customer

How did Carlyle spin the deal in their press release? It referred to the North Carolina market for FNB and Granite as:

Overall, during 2009 and 2010, the North Carolina business environment has been adverse for many households and businesses and continues to deteriorate. There can be no assurance that these conditions will improve in the near term.

How are employees faring at FNB? They had their pension and post retirement medical and life insurance accruals frozen a year earlier than expected.. Employees got a memo regarding the deal, stating employees needed to know Jack:

Please submit any questions using the Service Request feature located on the homepage of Jack. We plan to respond to questions as soon as we are able to do so.

Carlyle co-founders, known collectively as the DBD's, are multi-billionaires. They hate to pay taxes and FNB is no exception. Carlyle sees huge value in FNB's tax benefits from operating loss carry forwards. The deal banks on their preservation.

Insider Architect of the Implosion

"I had a choice. I could be an insider or I could be an outsider. Outsiders can say whatever they want. But people on the inside don’t listen to them. Insiders, however, get lots of access and a chance to push their ideas. People — powerful people — listen to what they have to say. But insiders also understand one unbreakable rule: They don’t criticize other insiders."--Larry Summers, Ph.D.

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